US markets regulator the Securities & Exchange Commission is investigating troubled sub-prime mortgage lender New Century, the firm has revealed.
Question marks are hanging over the US mortgage market
New Century has stopped making loans and its shares have tumbled, with some analysts now predicting bankruptcy.
The firm also said it had received a grand jury subpoena for documents.
Sub-prime lenders provide money to clients with a poor credit history, and the current problems have been sparked by a rise in defaults and bad loans.
These, in turn, have been triggered in part by a relentless rise in interest rates from rock-bottom levels in the past four years, and falling house prices and rates of homebuilding in many parts of the US.
The problems, which have seen default levels on sub-prime mortgages hit a seven-year high, are not limited to New Century, and other lenders have also announced that they have been caught up by the downturn in the sector.
Another sub-prime company Accredited Home Lenders Holding said on Monday that it may have to raise extra funds, seek debt waivers, cut jobs and put back its earnings announcement. Its shares fell by 28% on Monday.
Countrywide Financial, the biggest US mortgage company, warned that the current problems would hurt profit in the short-term and added that it would cut 108 jobs.
New Century shares were suspended on Monday after tumbling almost 50% in pre-market electronic trading. The stock is down 90% this month.
The company has warned that it may have to buy back more than $8bn (£4.2bn) in loans, and its creditors are claiming that the company is in default of loan agreements and have halted financing.
New Century now has less than $60m in cash, according to the SEC.
Creditors include Morgan Stanley, Barclays, Bank of America and Citigroup.
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